Private Rail Companies Under Scrutiny as Government Orders Probe into Excessive Profits

The British government has launched a comprehensive review into private train operators amid concerns they are generating “super normal profits” that could cost taxpayers upwards of £200 million annually. Transport Secretary Heidi Alexander’s intervention has sparked significant tension with FirstGroup, one of Britain’s largest transport organisations, whilst potentially derailing Sir Richard Branson’s aspirations to restore the Virgin brand to British railways.

Open access services, which have gained substantial popularity amongst consumers through offerings like FirstGroup’s Lumo service with London to Edinburgh fares starting at £19.99, are now facing heightened scrutiny. While Alexander maintains these operators will retain their place in the railway ecosystem, the government’s chief transport official is advocating for stricter controls on licensing.

Richard Goodman, director-general for Rail Reform & Strategy, has addressed the Office of Rail and Road (ORR) regarding the need to elevate standards for new open access operator licences. Recent Department for Transport analysis reveals potential annual “abstraction” costs to the Exchequer could reach £229 million if all pending licence applications receive approval.

FirstGroup’s operations, particularly Lumo and Hull Trains, have come under specific examination. Hull Trains achieved a remarkable 32 per cent operating profit of £34.1 million in 2024-25, prompting Whitehall sources to question the fairness of their track access payment structure and public service obligations.

The timing of this review coincides with Labour’s broader nationalisation agenda, with South Western Railway already brought under state control in May, and c2c and Greater Anglia set to follow. This governmental scrutiny poses significant challenges for Virgin’s application to operate open-access services on the west coast mainline, with officials citing severe infrastructure constraints as a major concern.

Despite the intensified oversight, the government maintains that open-access operators will retain a role in British railways, even as contracted services transition to full public ownership. This stance was recently demonstrated through support for the new Wrexham, Shropshire & Midlands Railway service, suggesting a balanced approach to railway management moving forward.